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Saturday, October 16, 2021

Fed’s Bond Taper Announcement for a Rate Liftoff in 2023

As reported by Bloomberg, the Federal Reserve is slated to make a hint at a meeting scheduled to be held next week about the step it is planning to take regarding asset purchases. It is likely heading towards scaling back upon the purchase of monthly assets for which it will make a formal announcement. This was confirmed by a Bloomberg survey of economists. 

The survey carried out of 52 economists predicts that the U.S central bank is likely to hold rates of interest at zero through the entire 2022 before delivering a 2-point quarter increase by the year-end. 

The Federal Open Market Committee (FOMC) is expected to hold a meeting Tuesday at 2 pm Washington time and reports and updated economic and rate predictions for the quarterly period would be released as well. 

When economists were asked about the expected announcement, it was found that at least 2/3rds of the surveyed economists believe that the announcement related to buying bonds will likely taper from December. 

Soon after the issue of policy statement at FOMC Chair Jerome Powell is supposed to hold a press conference half an hour later. There are 3 more predictions 

There are other predictions as well. Aside from expecting that there might be rate liftoff in 2023, which essentially matches the median projection that the Federal officials made in June. The survey also anticipates that the first liftoff will be followed by 3 more lifts in 2024. This will increase the upper bound limit to 1.5% by the year-end as far as federal funds are concerned.

Powell will still be heading the ship for policy normalization, and he expects that President Joe Biden will nominate him again for the 4-year term once his role as Fed Chair expires in February. 

One of the main issues to occupy center stage at the Federal Open Market Committee will be the tapering debate. It is quite likely, as per Bloomberg assessment that the policy group will hang on to the rates close to zero, and the $80 billion worth in Treasuries and $40 billion in mortgage securities will continue every month. 

Bond buying will continue as pledged by the officials till the time the economy does not turn back again or manifests “substantial further progress” on employment opportunities and inflation as it gradually recovers from the Covid-19 pandemic

What will the Tapering Debate be all About?

On witnessing an increase in prices and the hot housing market in the United States, many regional Fed presidents have expressed concerns and therefore pushed for a September tapering much ahead of its scheduled time. They prefer completion of the winding down of the asset purchases before the rates rise. If initiated this month, it would mean that the liftoff of rates could be done as early as 2022, if inflation has to be curtailed. 

While regional Fed presidents vouch for the above, many others have put forward an argument wherein they have asked to exercise patience so that the economic impact due to the rise in covid-19 infections causes by the new delta variant can be assessed first. 

However, the Bloomberg economists expect the prevailing rates of interest liftoff to take place in the third quarter of 2023. It may be mentioned here that according to Bloomberg, participants of FOMC in June causes a stir by providing projections that for the first time showed two rate hikes in 2023.

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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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